Be Prepared

Operating a business can leave little time to plan forsomething that may never happen. But 2011—which ended in a recordyear for natural disasters—serves as a powerful reminder that thereis much at risk and businesses cannot afford to be unprepared.

Last year, catastrophes hitting the U.S. resulted in more than$32 billion in claims for the insurance industry, of which a largeportion was paid to businesses. Disasters can do more than causeproperty damage—they can disrupt operations through a power outageor data breach. That spells big trouble for a company's reputationand bottom line.

Despite that, many businesses still don't take disaster planningvery seriously.

A recent survey commissioned by The Hanover Insurance Groupreports that 63 percent of business owners surveyed said it was“not very” or “not at all likely” that their business wouldexperience a disaster such as a flood, hurricane, tornado or anyother incident causing loss of use. With these results, it is notsurprising that only 41 percent reported having written plans inplace to maintain their businesses in the event of acatastrophe.

Moreover, while 51 percent of businesses surveyed reported beingconcerned with the privacy and security of their business records,more than four out of five don't have any protection againstit.

For the independent agent, these statistics demonstrate animportant opportunity to use their expertise to provide service andprofessional advice to business customers regarding the risks theyface.

Effective business continuity planning combined with customizedcoverages provide valuable defenses against disasters. Agents whohelp customers identify and plan for these risks are deliveringunique value and differentiating themselves in the market.

Business Continuity Planning

When disaster strikes, a business comes screeching to a halt fordays, weeks or even months. We see the best agents and carriersworking together to not only provide excellent insurance coverageadvice, but also offering value-added services to their businessclients. This includes building effective business continuityplans. Prepared businesses that undergo a disaster recover betterand show more loyalty to those agents who advised and protectedthem ahead of time.

When building a strong business continuity plan, agents andcarriers work with a customer to:

Anticipate the types of events or threats a business may faceincluding fire, hurricanes, ice storms, floods, data breach andvandalism
Assess all of the business' assets—including a building oroffice, inventory and intangibles
Review protection already in place against potential threats(such as how to evacuate in the event of a fire) and assess currentsystems, including network firewalls, security cameras and sumppumps
Determine areas of potential business impact they would facepost-disaster, such as employee impact, financial impact and legalimpact.

Next, agents may want to work further withtheir business customers to build a plan for recovering following acrisis. Below are the top 10 key items:

An overview of assets and potential threats to thebusiness.
List of key employees/job functions, and back-ups in the eventthey are unavailable.
List of employees who can function in their roles from a remotelocation.
Critical paperwork stored in a safe place. This may includelegal documents such as articles of incorporation, bankinginformation, employee information, etc.
List of key external contacts and vendors, which include aninsurance agent, important suppliers, attorneys andconsultants.
Plans for essential equipment and services. Whether items likecomputers or access to the Web, businesses should understand whatthey need to function in a crisis.
Back-up of digital data. The plan should include back-up ofimportant digital files outside of the business area in the eventthat company hardware is destroyed or inaccessible.
Alternate site options. The plan should spell out a plan forestablishing operations at an alternative location if a building isunusable.
Step-by-step communication plan. How will the crisis team benotified? How will employees be communicated to? In whatorder?
Step-by-step recovery outline. The plan should include a clearoutline of business recovery, including a timeline and estimatedcosts.

To bring this all together, communicate and practice.

The Right Insurance

Offering sound advice to protect businesses from disaster is asimportant as advising a customer on building a business continuityplan. While traditional property insurance covers buildings orequipment, business interruption insurance offers a life preserverfor a business when a disaster hits.

If a business is destroyed or otherwise unusable, businessinterruption compensates for income lost. The coverage includescompensation for operating expenses and profits that may have beengenerated during the disaster—based on existing records. Anorganization should be advised to obtain enough of this coveragethat it will have time to rebuild, relocate or restart.

While some business owners' or commercialpackage policies offer expenses and loss of net income, they maynot cover income interruptions for offsite damages, such as utilitycompany failure or a problem with a key supplier.

Another important coverage to consider offering a businesscustomer is extra expense insurance.

Extra expense insurance will pay a business a reasonable amountof money in excess of normal operational expenses in order to helpfuel the speed of the organization's recovery.

If a flood damages a business office and its equipment,cleaning and repair may take 6 months. During that time, thebusiness owner wants to continue operations to minimize the loss ofcustomers. This requires renting a temporary location, furnishingthat location, installing a phone system and notifying customers tothe new location. Because these costs are in excess of normalexpenses, they only are covered if the business has extra expenseinsurance.

Agents also may want to offer their customers emergency eventresponse policies. Coverage for emergency communications, such aspublic relations, minimizes the financial impact of a disasterwhile mitigating the reputational risk the business might facepost-disaster. This also includes post emergency event expenses ifmedical treatments, counseling or funeral arrangements areneeded.

Agents should consider other unique coverages for risksexperienced by specific industries, such as technology,manufacturing, or educational providers. Carrier's loss controlunits are an excellent source of industry specificinformation.

Convincing the customer

The best defense against disaster is to plan in advance. Thebest agents, in their roles as consultants, point to the facts andrecent history to demonstrate the increased likeliness of acatastrophe.

Agents who have developed their expertise and help businessowners understand the importance of a business continuity plan,combined with the right coverage, create greater value and havemore opportunities for their agency over time.

Without this important two-pronged protection approach, manybusinesses will find it difficult to recover should they face adisaster striking their operation.

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